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A G O 6 1992
Summer 1992



News and Views



Being Done
About It?


Time Again
Federal Reserve Bank of St. Louis

Eighth District Bankers

"The regulatory burden on
ll.S. depository institutions h;L<;
grown progressirely to the point
where it may well threaten the
viability of the banking indust,y
itself" Federal Reserve Governor
John La\\'are said before a congressional subcommittee early
this summer.
LaWare expressed his concern
again at three public meetings
held across the count,1· in late
The meetings were in response
to the Federal Deposit Insurance
Coq1oration Improvement Act of
1991 (FDICIA) requirement that
the Fed, the FDIC, the OCC, and
the Office of Thrift Supervisionthe agencies that make up the
Federal Financial Institutions
Examination Council (FFIEC)-

study regulatory burden. It is
study the regulatory burden.
required by FDICIA to submit a
FDICIA requires that the FFIEC
report to Congress in December.
reriew the policies. procedures.
recordkeeping and documentation requirements of its agencies
and identi~· any burdens that
could be removed without
endangering the safety and
soundness of institutions. In
response. the FFIEC established ,.
the Regulatory l'niformity
Project to formalize its ongoing
effort to emphw;ize consistency
among agencies and reduce regulatory burdens and costs.
Aresult of this project was a
recent FF! EC statement that
clarifies recordkeeping and
documentation requ irem en ts
for banks under the Community
Reinvestment Act.
The FFIEC will continue to

eginning in late July and
for the next few weeks thereafter, the FFIEC will be sending
District financial institutions
subject to the l lome ~lortgage
Disclosure Act (I !~!DA) their
1991 Hl\1DA disclosure reports.
A<; before, each institution
will hare 30 days to study its
report before it becomes publicly
As several institutions learned
hst year. this W-day period is
crucial and should be spent carefully reviewing report<; for content

aml accurac~. The time to identi~-errors or misleading information is before the report is made
public. This is also a good time
to prepare your response to potential questions about the reports.
l lMDA requires that institutions
make their reports available for
inspection and copying 30 days
after they receive it. and that a
notice about the availability
of Il.\1DA data be posted in
home offices and at le;L<;t one
branch in each metropolitan
statistical area.


Questions about your report

should be directed to your federal regulatory agency. At Fed
St. Louis, call Jon nee Wadlow
at (31-+) +H-8555.

Regulatory Burden and Noninterest
or District bankers
faced with the challenge
of maintaining earnings
in a period of slow loan
growth, the noninterest
Joan P . Cronin
expense line on the
income statement receives increasing scrutiny.
The cost of regulatory compliance puts additional pressure on that figure.
Through 1991, aggregate noninterest expense
for all District banks remained generally stable
at 3 percent of average assets. However, District
banks with less than $100 million in assets,
which historically benefited from lower ratios,
experienced increases in noninterest expense


Nonetheless, while these efforts proceed, regulations required by FDICIA are being drafted.
Because FDICIA is a very specific piece of banking legislation, it limits the discretion available
to the Fed when drafting these new rules, which
will also affect your costs.
Please remember that the rule-making process
includes a public comment period. Use it.
Each comment you send to the Fed is read.
Comments that reflect an understanding of a
proposal and outline the practical effect of a
proposed regulation on a bank's ability to offer
credit and serve its community are particularly
useful. They can shape the final regulation.
Where FDICIA permits flexibility, such com-

in 1989, 1990 and again in 1991.
Recognizing that these increases include the
cost of bank compliance programs, the Federal
Reserve has accelerated its efforts to limit
compliance burdens and costs. Together with
other regulators, it is taking steps to improve
coordination of examinations and inspections
with both federal and state regulators. Also
under way are interagency working groups
addressing common applications forms and
common classifications and accounting treatment of certain assets.

ments allow the Fed to draft a regulation that
accomplishes Congress' purpose with a limited
cost to you.


Federal Reserve Bank of St. Louis

ou ~1-;ked for it, you got
it- mo re super\'isory information from the St. Louis Fed.
In July, the St. Louis Fed's
Division of Banking Supe rvision
and Regul ation in troduced
Super,•,;m,:r Issues, a bimonthly
newsletter on supervisory and
regu latory matters fo r the
Ei ghth District.
Su/Jel'L'!;,w:r Issues was introduced to respon d to bankers'
requests fo r more supervisory
and regul atot)' guidance.


.for/II P. Cm11 i11 is tbe se11ior !'ice preside11I (!ftbe Ba11ki11g S11pen •isio11 a11d
Neg11/atio11 /Ji1 isio11 (!/!be Federal Nesen e Bank ofSt. Louis.

When surveyed earlier this
year, nearly 75 percent of Distri ct
bank respondents ~L-;ked for a
Fed publication devoted to brief
analyses of supervisory and regulatory matters.
Supm•1;m1:1' Issues will provide
banks with inform ati on on
proposed and fin al regulations,
~L<; well ~L<; policy guidelines.
Suggestions from Fed examiners
wi II also be included. In addition to the newsletter, the
Division of Banki ng Supervision


and Regul ation is respondi ng
to bankers· requests fo r more
info rmation by offerin g educational seminars and an expanded
telephone "hotline" service.
If you have suggestions fo r
SujJerl'iso1:r Issues or would like
info rmation on other supervision and regul ation services, call
Dawn Ligi bel at (3 14) 444-8909.

Tinkering with Federal
Deposit Insurance


Mark D. Flood
Federal Reserve Bank of St. Louis

ederal depo_sit insur~nce is
a defining feature of our
nation 's financial landscape.
It has been around so long- it
will be60yearsonjanuary l,
1994-that there are few bankers
working today who can remember the industry before there ww;
an FDIC.
For many years, federal deposit
insurance was regarded ~L'-> a tremendous success. /1.s it protected
depositors, it also prevented
banking panics and thus contributed greatly to monetary
stability. The painful experiences of the 1980s have soured
this cheery assessment, however.

For many years, federal deposit insurance
was regarded as a
success. The painful
experiences of the
1980s have soured
this cheery assess·
ment, however.
As we evaluate the various
options for reform , it is worthwhile to recall that federal
deposit insurance was extremely
controversial at its inception in
the Banking Act of 1933. Sen.
Robert Bulkley (D-OH), speaking on i\1ay 4, 1933. identified
the possible dangers:
In the stress of the recent
banking crisis ... there was
a very definite appeal from
bankers for the l'nited
States Government itself to
insure all bank deposits so
that no depositor anywhere
in the country need have
any fear as to the loss of his
account. Such a guarantee
as that would indeed have
put a premium on bad
banking. Such a guarantee

;L<; that would have made
the Government pay substantially all losses which
had been accumulated.
whether by misfortune, by
unwise judgment, or by
sheer recklessness. and it
might well have brought an
intolerable burden upon
the Federal Tre;L<;ury.

With estimates of taxpayer losses in the FSLIC bailout exceeding
$200 billion, his words now seem
strikingly farsighted.
Despite Bulkley's intimation,
however, bankers in 1933 were
far from showing unanimous
support for deposit insurance.
Indeed, the American Bankers
A-;sociation and the Association
of Reserve City Bankers both
mounted intense campaigns
against it. Their arguments
were informed, in part, by the
expe rience of the state deposit
guaranty plans of the 1910s
and 1920s, all eight of which
had failed. Ironically, the
opposition also included Carter
Gh'->s (D-\i\), who shepherded
the bill through the Senate, and
Franklin D. Roosevelt, himself
a former insurance executive,
who signed the bill into law.
Their personal opposition was
overwhelmed by the immense
popular support for insurance;
rather than defend a lost cause,
they chose to help shape the
The potential perils they saw
in federal deposit insurance are
the same flaws we hear today: it
substitutes supervisory discretion
for the rigorous discipline of
the marketplace, it tends to subsidize banks with risky loans
and relatively low capital, and
it puts the federal taxpayer at
risk. The original legislation
addressed these concerns by

imposing conservative coverage
ceilings, raising chartering standards, broadening supervisory
authority and emphatically
segregating the insurance fund
from the federal taxpayer.

The potential perils
people saw in federal
deposit insurance in
1933 are the same
flaws we hear today.
What h~L'-> happened in the
intervening years? Coverage
ceilings have risen steadily,
even <J'ter adjusting for inflation.
Brokered deposits and FDIC toobig-to-fai I policies ha\'e further
expanded the scope of coverage.
The full faith and credit of the
ll. S. Tre<L<;ury now backs up the
insurance funds. Deregulation
has subjected both banks and
thrift<; to increasingly harsher
competition and, in some GL'->es,
relaxed regulatory scrutiny. Our
recent deposit insurance troubles
may be the result of such piecemeal tinkering with a complex and far-reaching institution.
.Hark IJ. Hood is r111 eco110111isl r1I
the Fedeml Resert •e Bank <!/SI Louis.
For more i1!/im11atio11. see bis article
in lheju(J'/A ug11sl 1992 issue <!/
the SI. Louis Fed's Rel!iell'. Call
(314) 4..,-1-HH0Y lo resert •e a rnpJ •.



The fo llowing are Federal Reserve
System proposals currently out fo r
comme nt:
■ Revision to Reg Hto
implement prompt corrective
action for undercapitalized
state member banks.
Comments due by August 14
(Docket No. R-0763).

Research Director
William G. Dewald will join
the St. Louis Fed ~L'i senior vice
president in the Research and
Public Information Division
in September.
Dewald will succeed Anatol B.
(Ted) Balbach, senior vice presi dent and director of research,
when he retires November 1.

■ Proposal to adopt uniform
regulations prescribing standards for real estate lending.
Comments due by August 31
(Docket No. R-076S).
■ Proposal on new Reg Fto
implement interbank liability
provisions. Comments due
by September 16 (Docket
No. R-0769).

Direct all comments to William W
Wile,, Secre!arJ', Board of Col'ernors
of the Federal Re,erve ~ystem, 20th
St. and Constitution Ave.. N. W.
Washingt011. DC 20551. For
copie, ofproposals out for public
comment, contact Anne Guthrie
at (314) 444-8810.

Federal Reserve Bank of St. Louis

Dewald is an international
economist on the Planning and
Economic Analysis staff of the
U.S. Department of State and a
former deputy director.
Prior to this, he was an economics professor at Ohio State

to convert paper securities to the
Tre~L'iury's electronic system.
The l~L'it definitive (paper)
Tre~L'iuty securities, issued in
1986. will mature in 2016.
Their increasing scarci~' has
incre~L'.ecl the costs of handling
each item .
By encouraging conversion,
you wi ll reduce your processing
costs, offer better service and
solidify your customer relationships. In return, investors have
safer, more conven ient Treasut)'
security investments.
To receive "Smart Exchange"
brochures, call Kelly Campbell
at (314) 444-8509.

FDICIA Establishes
New Rules For FDIC

Treasury Encourages
"Smart Exchange"
The "Smart Exchange" program ,
recently launched by the U.S.
Treasury, is a nationwide effort

All newly chartered banks
must now apply directly to the
FDIC for deposit insurance
under FDICIA. This includes
institutions being formed for
the sole puq1ose of acquiring a
failed bank or thrift by merger.
Formerly, newly chartered
national and state member
banks received deposit insurance
automatically with the approval
of their national charter for
Federal Reserve membership.

It's 431 down, 147 to go. With
the final all-electronic /\CH
(/\EACH) deadline less than
one year away- July 1, 1993District:wicle conversion of
AC! I participants to electronic
de! ivet)' continues.
So far, about 77 percent of the
institutions that receive AC! I
commercial items from the Fed
do so electronically. Before the
J\l~ACH deadline w~L'i announced

in December 1990, only 30 percent of commercial /\CH receivers
were electronic. Since then, 431
have made the conversion.
Nationwide, more than 4,700
depository institutions have converted to a Federal Reserve Bank
electronic connection. Those
who have converted now benefit
from the fast, reliable receipt of
items, reduced Fed fees, and
incre~L<;ed security and privacy.

New institutions seeking
insurance must also now have
$2 million expected mi nimum
initial capitalization; the old
requirement was $750,000. The
FDIC will, however, consider
approving applications with
lower amounts when there are
"compell ing circumstances .. ,

New Logo Symbolizes
Nationalization of
Fed Services
Anew Fed logo is beginning to
appear on many Systemwide
promotional and educational
materials for Feel customers.
The new logo symbolizes the
Fed's effort to develop products
and services on a national
rather than regional level.
The move
to nationwide
services wi 11
consistency of
quaJi~, across
District lines.
Customers, of
course, will
continue to
communicate with their local
Fed offices for all Fed services.

The time to convert is now. If
you convert before 1993, you'll
avoid additional fee increases
associated with tape and paper
Contact your account executive or the Customer Support
Department at 1-800-333-0869
or (314) 444-8660 for a-;sistance
and information.

What Fed Consolidation Means For Bankers


Federal Reserve Bank of St. Louis

!most a year h<L'-i
P<L'-isecl since the
Feel announced
its plans to consolidate the prima1~·
mainframe data
processing of all 12 Federal
Reserve Districts at three locations-Richmoml, Dallas and
fa-;t Rutherford, f'.'J

Consolidation will improve the
reliability and a\'ailability of the
Fed's critical computer systems,
eliminate duplication of resources
and equiplllent and. eventually,
reduce operating costs.
Though consolidation will
significantly affect how we process payments and data. our
customers should notice little
change in our service.
For financial institutions,
day-to-day operations \\'ith the
Fed will remain much the same
cL'-i always. Regardless of where
the processing occurs. the St.
Louis Fed will have the ability
to access all the custolller transaction and account inforlllation
you will need. Therefore. your
service relationship with our
Bank will remain the same.
The St. Louis Fed is scheduled
to consolidate its data processing
and move new applications
between July 1993 and midyear 1994. Beginning this fall.
District institutions \\'i 11 be
:L'-iked to help us test certain
applications to ensure that our
processing changes will not
impair your operations. Though
testing may cause some inconvenience, your participation is
crucial to making the transition
to consolidated processing a
smooth one.

Once accomplished. consolidation will enable us to enhance
lllany Fed services. For example.
after consolidation, i\Cl I customers will have se\'eral ne\\.
options. \'al ue-added servicessuch cL'-i the ability to have
specific types of items routed
to different locations. on-line
access to transaction status. and
control over delive,y times- will
be new. You will hear more
about these enhancemenL'i <L'i \Ye
move toward our new processing
For more information on
automation consolidation. testing or future services, call Jerry
~1cGunnigle at (314) 444-8732.

eginning September !2.
the St. Louis office will
offer Saturday check processing,
allowing many financial institutions to impro\'e their \\'eekend
funds availability by up to
two days.
A1991 sur\'ey showed that
many St. Louis zone institutions
process checks on Saturday and
hold the items until ~londav.
In most CcL'-ies. "other Fed items··
receive Tuesday or Wednesday
funds availability. The new

Saturday deadlines will allow
institutions to deposit these
items on Saturday and receive
~londay morning availability
on most endpoints.
"We realize that lllaximizing
funds availability is important
to our customers." ~like ~lueller.
assistant \'ice president of the
St. Louis Check Department,
said. "We also recognize the
need for flexibilit\'. Institutions
that don't process checks on
Saturday can still deposit on

Frida~ ern1ing or use our ne,\·
amount encoding service to
take advantage of Saturday
If you would like more
information, contact Customer
Support at (314) 444-8680 or



St. Louis Reduces Cost
of MICRLine Services
On June 1, the St. Louis office
reduced the minimum daily fee
associated with its MICR!ine
service from $10 to $5 per day.
In addition, the fine sort inclusion fee was reduced from $0.01
to $0.009 per item. Both price
reductions make MICR!ine
more affordable.
If you have considered the
MICRline service in the past,
but could not cost-justify it, now
may be the time to take another
look. For a detailed cost analysis, contact Customer Supp011
at 1-800-333-0869.

Louisville Offers New
RCPC Group Sorts
On June 15, the Louisville office
began offering two new RCPC
group sort deposit options. These
are in addition to two others
announced in Febrnary. The
attractive deposit deadline and

item price will enhance the collection of Louisville zone items.
For a list of the endpoints
available, please contact our
Louisville office at (502) 5689257 or Customer Support at

Get All The "Facts" In
St. Louis
District bankers can get the
facts on Fedline®at a Fedline
Advanced Continuation Training
Session (FACTS) September 15
in St. Louis. The session is for
Fedline users who want a review
of its services and an introduction to future services.
FACTS sessions are being
introduced after a successful
pilot program last spring. An
institution can send up to two
people to the all-day session at
a cost of $50 each. (It's free if
you've tested with us twice in
the past 12 months.) Other
Eighth District offices will also




Post Office Box 44~
St. Louis. .\1issouri 6.~ 166



CB is published quarterl y by the

Public Information Office of the
Federal l{eser\"e Bank of St. Louis.
\"iews expressed are not necessaril\"
official opinions of the Federal ·
l{eserve System or the Federal
Reser\'e Bank of St. Louis.
Federal Reserve Bank of St. Louis

host sessions, beginning with
Memphis in the fall of 1992.
To get more information or
to sign up, call the Customer
Support Department at 1-800333-0869 or (314) 444-8680.

FRY·9SP Can Now Be
The St. Louis Fed is now
accepting data electronically
for the "Parent Company Only
Financial Statements for Bank
Holding Companies with Total
Consolidated Assets of $150
Million" (FRY-9SP) report.
For more information on submitting data on this or other
reports electronically, call Robin
Miller at (314) 444-8554 or
1-800-333-0810, ext. 8554.

Fed-sponsored Events
for Eighth District
Depository Institutions

September 24, 2S
Community Development
Lending Conference
sponsored by the St. Louis Fed
and the Federal Ilome Loan
Banks of Des ~loines and
St. Louis, ~1o.

September 29
District Dialogue
Springfield, ~io.

September 30
District Dialogue
Fort Smith, Ark.

October 27
Regional Economic Forum
Louisville, Ky.

October 28
Regional Economic Forum
Bowling Green, Ky.
For more information on
these meetings, ple~L'ie call
(31 4) 444-8320